et’s see, I can buy my Imac directly from Apple. I can buy Screaming Eagle directly from the winery. I can even buy Viagra directly from Pfizer. But I can’t buy a Ford directly from Ford, or a Honda directly from Honda. If I want to buy a new car, I have to buy from an “independent third party,” also known as the automobile dealer.
Ever wonder why? Well, in most states there are actually laws that prohibit direct manufacturer to consumer automobile sales. Exhibit A: the great state of Texas, the state of personal freedom, insane gun rights, and “we don’t need any state or federal regulation telling us what to do.” Except where are car sales are involved- it is illegal for car manufacturers to sell directly to consumers. Even showrooms by car manufacturers in Texas are heavily regulated. Showroom employees cannot offer test drives, or even mention the price of a car. But Tesla, the maker of $62,000 electric cars (yes, I do own a little Tesla stock –not the best p/e in my portfolio but one day….) , says – wait a minute, why not? Well, because life as we know it would come to an end, says the president of the Texas Automobile Dealers Association. Using the dealer system is crucial because the dealers will raise that price to $70,000 to ensure that they get a healthy profit. A couple of courageous and soon to be former state lawmakers are sponsoring a bill exempting manufacturers of electric cars from the Texas laws preluding direct sales. The Texas Automobile Dealers plant to fight this bill tooth and nail, and the Nation Automobile Dealers Association plans to join the fight. If this bill passes, however, the flood gates may be open as other automobile makers will say – “us too, us too,” and they will challenge the obviously unconstitutional dealer protection legislation in most states. In ten years, the automobile dealer could go the way of the Dodo Bird, Tower Records and local bookstores. Let’s hope so – these guys have held us hostage and jacked up the price of our cars for a generationAnd you know what else is funny? About a month ago the Republicans were muttering about how Tesla was going to be the next Solyndra. Then Tesla turned a profit. Then Tesla was ranked as the best luxury car sold in America. Now the Chamber of Commerce Republicans are trying to make it more expensive for people to buy. No wonder some think they just want to wreck the economy when a Democrat is President.
my first inkling would be why would the manufacturer want the added responsibility and cost with the retail side of the business?
To me it's nothing more than outsourcing and knowing your core competencies. Ford is a auto manufacturer. They do that well. The dealer/distribution part of the supply chain brings existing infrastructure, local marketing knowledge, transfer of inventory control, and other core competencies. Does Ford really want to run the retail side? Do they want to pay health care to another 100K employees? Do they want a potential union issue? What the dealer actually gets as far as a mark-up is relatively small. They get their revenue in the up sale and after sale.
I don't see this necessarily going the way of the dodo bird, i.e. moving to the Amazon model.
What are they afraid of? Tesla was on the verge of bankruptcy not long ago.
I was looking more from a mass distribution, hence GM, Ford, Toyota, whereby Tesla is unique. At least today it's unique.
You know me as a free market capitalist, so yes, anything to eliminate archaic business models or laws is definitely OK w/me. I just doubt the CEO of GM or Ford want the hassle of the direct retail side.
I'm now going to contradict myself a bit by saying the Amazon model may work for low end cars, where the options, complexity and emotions are eliminated in the buying experienc
Making it illegal for the manufacturer to even try makes no policy sense - it's just pure dealer protection.
I think the comparable model is Apple, not Amazon, which is a middleman. Those same objections were all raised to Steve Jobs but he and Ron Johnson decided the benefits were worth the burdens and now Apple is one of our top retailers in terms of sales per square foot. Yes they now pay for health care for many more employees and have all the retailer's headaches but have you been to an Apple Store. They typically are the busiest store in the mall.
And the dealer system is no picnic for the manufacturers. Once you grant a dealership, it is very difficult under state law to get rid of the dealer no matter how badly he performs. GM and Chrysler had to go thru bankruptcy to shed their huge dealer network. They both had way too many dealers. This is the kind of fresh thinking these old warhorses need.
Keep the dealer system, but change the laws to allow more flexibility for the manufacturers to select, change or cancel dealerships. That point we agree.
You can compare Tesla to Apple. both "today" are unique, high-end and a status symbol. Where are other smart phones sold? Ford, GM, Toyota are the Samsung, Nokia, Androids of the auto world. Eventually, Apple will be no different. Life cycle of a company.
Don't discount Amazon. Shoppers go to Best Buy to look, touch and learn, but not buy per se. They go online to Amazon. Why couldn't you sell a low-end Ford Focus online?
P.S. Of course Apple can pay for health care. Mari, do I need to show you Apple's balance sheet vs GM's? What's the gross and operating margin of both companies?
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inventor. Even if not his inventions, which were many, he made other inventor's creations better (including numerous Edison patents).
Very literally, not a single thing electronically would exist without his work.
Those Tesla electrical batteries will some day soon may you a millionaire. Top notched idea that is waiting to explode. Doubt me? There is regulations in place that in a few decades, cars have to get a minimum mpg... that can be affected by numerous things, of which an electronic car is one of them.
the corporation is another matter. At the moment, they are not making any money and until they can get the cost down to about half of what it is now and establish an infrastructure of charging stations, I don't see that happening.
The stock is about $89 a share with no trailing 12 month P/E. I got in at about $45 if I remember correctly but I only bought a couple hundred shares. For a while it looked like they might go under. And the more that natural gas is used in vehicles, the less appealing their technology appears. But I'm going to hold for a couple more years at least.
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